D. Transfer on Direction of customer - The best answer is C.
Transfer On Death is a type of account registration that allows the registered owner to name the person
into whose name the securities will be transferred upon the death of the customer. Thus, the securities
are not required to be transferred into the name of the estate; and then retransferred to the
beneficiary; after the estate clears probate.
An 80-year old customer with an existing individual account comes into a branch office and tells his
representative that: "My son has been telling me that I need to give him a power of attorney over my
account because of my advanced age, and I want to keep him happy and keep him from putting me in a
retirement home." What should the representative do?
A. The representative should give the customer a power of attorney form, naming the son as attorney
over the account, and have the customer sign the form
B. The representative should contact the son and get permission to have the customer sign a power of
attorney
C. The representative should escalate the matter to the branch manager or compliance department of
the firm
D. The representative should freeze the account until it can be determined that the customer is not
mentally incapacitated - The best answer is C.
The SEC and FINRA are concerned about aging investors, who as their mental capacity diminishes, are
prey for investment scams. To protect senior investors, firms must train their employees to identify
diminished mental capacity. In this example, the red flag is that the 80-year old customer tells the
representative that "if I don't give my son a power of attorney, he will put me in a home." It could be
that the son really is acting in the customer's best interests; or the son could be attempting to coerce
the old man to give a power of attorney so the son can drain the account. From the initial information
given, we just don't know the full details of the situation. FINRA requires that firms have an internal
process to permit representatives to get advice from others as to what steps to take. These include:
,the representative should document the suspected diminished capacity and escalate immediately;
the firm should have a clearly designated individual to whom the matter is escalated.
Once the problem is identified and escalated, the next step for the firm is to determine if the customer
appears to be competent and if the son is acting in the elderly father's best interests. If so, then
completing the power of attorney is appropriate. If not, then the next step would be to alert a
government protective services organization.
The maximum life on a regular stock option contract is:
A. 4 months
B. 8 months
C. 12 months
D. 24 months - The best answer is B. The maximum life of a regular stock option contract is 8 months
(this may be tested as 9 months, though). Longer term stock options, known as LEAPs (Long Term Equity
AnticiPation options) have a maximum life of 30 months.
A type of brokerage account where the customer is charged a single annual fee for all account services,
regardless of activity in the account, is known as a:
A. fiduciary account
B. active trader account
C. wrap account
D. omnibus account - The best answer is C.
Wrap accounts are a type of customer account, where all services performed by the broker are
"wrapped" into a single account; and a single annual fee based as a percentage of assets under
management is charged. There is no commission charge for each transaction performed in such an
account nor are charges imposed for safekeeping of securities. All services are covered in the single
"wrap" fee.
Also note that "wrap" accounts, because they charge a flat annual fee and not commissions, are defined
as investment adviser products. These must be sold through an investment adviser subsidiary of a
, broker-dealer, and the representatives that sell them must be registered as "IARs" - Investment Adviser
Representatives - in each State where they offer the product.
All of the following information is needed to open a new cash account for a customer EXCEPT:
A. the citizenship of the customer
B. whether the customer is an officer or director of a publicly held company
C. whether the customer owns the stock of another publicly traded broker-dealer
D. whether the customer is an employee of another broker-dealer - The best answer is C.
Country of citizenship is deemed to be an essential piece of information because the PATRIOT ACT
requires that a copy of the customer's passport be obtained if an account is opened for a non-U.S.
citizen and the customer must have a U.S. tax identification number. Officers and directors of publicly
held companies are restricted under Federal law in their trades of that company's stock, so this
information is essential. If a customer is employed by another financial services firm, then special
procedures must be followed to open the account, so this information is essential. Whether a customer
owns stock of another publicly traded broker-dealer is not essential - for example, if a customer opening
an account at Merrill Lynch owns the stock of, say, Raymond James, this does not affect the opening of
the account; nor how transactions are handled in the account.
Which statement is FALSE regarding Section 529 Accounts?
A. Any adult can open an account for any beneficiary
B. Account contributions are not deductible, but earnings build tax-deferred
C. Non-taxable distributions may be made to pay for qualified higher education expenses
D. Non-taxable distributions may only be made to educational institutions in the state that sponsors the
plan - The best answer is D.
Any adult can open a Section 529 account for a beneficiary. Contributions are not tax deductible, but
earnings build tax-deferred. Distributions to pay for qualified higher education expenses are not taxable;
and these distributions can be made to any qualified educational institution in any state.
A customer buys 1 ABC Feb 45 Call @ $4 when the market price of ABC is 46. If the market value of ABC
falls to $41 and stays there through February, the customer will:
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